Equitable Trust Co. of New York v. Washington-Idaho Water, Light & Power Co.

• Decision Date: 14 July 1924
• Docket Number: 936.,928
• Citation: 300 F. 601
• Parties: EQUITABLE TRUST CO. OF NEW YORK v. WASHINGTON-IDAHO WATER, LIGHT & POWER CO. et al. GUARANTY BANK & TRUST CO. v. SAME.
• Court: U.S. Court of Appeals — Ninth Circuit

300 F. 601

EQUITABLE TRUST CO. OF NEW YORK v. WASHINGTON-IDAHO WATER, LIGHT & POWER CO. et al.

GUARANTY BANK & TRUST CO. v. SAME.

Nos. 928, 936.

United States District Court, E.D. Washington, Southern Division.

July 14, 1924

[Copyrighted Material Omitted]

Grosscup & Morrow, of Seattle, Wash., Murray, Aldrich & Roberts, of New York City, and John A. Laing, of Portland, Or., for complainant Equitable Trust Co. of New York.

John A Laing, of Portland, Or., and Frederick Bausman, R. P. Oldham and Walter L. Nossaman, all of Seattle, Wash., for complainant Guaranty Bank & Trust Co.

Winter & Maguire, of Portland, Or., and Guy E. Kelly, of Tacoma, Wash., for defendant Washington-Idaho Water, Light & Power Co.

Wright, Froude, Allen & Hilen, of Seattle, Wash., for interveners Bonney, McQuail, and Curts.

WEBSTER District Judge.

Washington-Idaho Water, Light & Power Company (hereinafter for convenience called Washington-Idaho Company) is a corporation organized under the laws of the commonwealth of Massachusetts and engaged in the states of Washington and Idaho in the business of generating, selling, and distributing electric current for light and power purposes, and in the sale and distribution of water for irrigation and domestic uses. On December 11, 1916, it executed to the complainant the Equitable Trust Company of New York (hereinafter called the Equitable Company), a corporation organized under the laws of New York, as trustee for the bondholders, a first mortgage on certain of its properties to secure the payment of a contemplated issue of $5,000,000 of 6 per cent. gold bonds, $754,000 of which were duly certified by the Equitable Company and properly disposed of in the open market by the Washington-Idaho Company to raise money for its corporate purposes. The principal of these bonds was payable on May 1, 1941, and bore interest at the rate of 6 per cent. per annum, payable semiannually on May 1st and November 1st of each year. On November 1, 1921, the Washington-Idaho Company defaulted in the payment of the semiannual installment of interest due on that date, amounting to $22,620.

On December 10, 1921, the Equitable Company filed in the District Court of the United States for the District of Massachusetts its original bill in equity, alleging this default in the payment of interest and praying a foreclosure of the mortgage; that the property be sold under the direction of that court and that the proceeds be applied in accordance with the provisions of the mortgage; that a receiver be appointed to take possession of the property and to manage and conduct the business of the Washington-Idaho Company, with all the usual powers and duties of receivers in such cases; and that an injunction be issued restraining the defendant company and all other persons from interfering with the property thus taken into the judicial custody of that court. No part of the property covered by the mortgage was at that time, or ever had been, in the state of Massachusetts, or within the territorial jurisdiction of the District Court of the United States for the District of Massachusetts; all the property and assets of the Washington-Idaho Company at all times being in the states of Washington and Idaho. Notwithstanding this, the District Court of Massachusetts, upon the filing of the complaint, made and entered an order appointing Julian Codman, of the city of Hamilton, Mass., receiver of the defendant corporation, and he thereupon duly qualified as such. The order also enjoined all interference with the property thus placed in the custody of the receiver.

On December 12, 1921, the Equitable Company filed in this court an ancillary bill in equity, alleging the filing of the original bill in the District Court of Massachusetts, the appointment and qualification of Codman as receiver of that court, that there was located in the state of Washington property belonging to the defendant Washington-Idaho Company, and that the fixed property covered by the mortgage was located partly in the Eastern district of Washington and partly in the District of Idaho, but all thereof being within the Ninth judicial circuit of the United States. This bill further alleged that 'a receivership in this court, ancillary in character, will protect the interests of all creditors and stockholders of the said defendant, Washington-Idaho Water, Light & Power Company. ' The ancillary bill in this court did not repeat the allegations of default set forth in the complaint filed in the District Court of Massachusetts, but merely referred to a copy of that complaint, which was attached to the bill as an exhibit. The relief prayed in this court was that an order be made taking into its judicial custody the property of the defendant Washington-Idaho Company in the state of Washington, and that the same be administered under the general orders and direction of the United States District Court for the District of Massachusetts, subject to such special orders as this court might deem prudent and proper in the premises. In short, the original bill in this court was purely ancillary in character, and expressly recognized the District Court of Massachusetts as the tribunal of primary jurisdiction and of principal decree.

Upon the filing of this proceeding, Judge Rudkin made and entered an order reciting the proceedings in the District Court of Massachusetts, and that the judge of that court had taken jurisdiction of the cause and had appointed Julian Codman temporary receiver therein, and reciting further 'that said ancillary bill filed in this court is also in the nature of an original bill for the foreclosure of a mortgage covering property in Whitman and Asotin counties, in this district, and Nez Perce county, in the district of Idaho, ' and that the appointment of a temporary receiver to prevent the dissipation of the assets of the defendant company and subserve the public interests was necessary and proper. The order then proceeded to appoint Codman and Morrow coreceivers of the defendant corporation and its property in the states of Washington and Idaho. This order also enjoined the company and all other persons from interfering with the property so taken into the custody of the court. Codman and Morrow thereupon executed the bond provided in the order of appointment and qualified as joint receivers.

On January 4, 1922, the Equitable Company filed in this court a pleading entitled 'Amended Bill in Equity, Ancillary and in the Nature of an Original Bill. ' This amended bill brought in additional parties, and, after setting forth certain formal matters, again alleged the proceedings in the District Court of Massachusetts, pleaded the mortgage and made profert thereof, alleged the execution by the Washington- Idaho Company of certain deeds of further assurance covering after-acquired property, alleged the existence of other after-acquired property, not included in the deeds of further assurance, but which fell within the clause in the mortgage relating to property subsequently acquired by the company, set forth property in Lewis and Cowlitz counties, in the Western district of Washington, consisting of an electric generating and distributing plant owned and operated by the Washington-Idaho Company through its receivers, and alleged the execution of a mortgage by the Washington-Idaho Company to Guaranty Bank & Trust Company, making that company a party defendant. It then alleged, for the first time in this court, the default of the defendant Washington-Idaho Company in the payment of the interest due November 1, 1921, and pursuant to the power conferred by the mortgage elected to declare the entire principal due together with the interest thereon.

As additional acts of default not theretofore asserted, either in this court or in the District Court of Massachusetts, it alleged that the Washington-Idaho Company had failed to maintain its resident statutory agents in the states of Idaho and Washington, entitling it to exist and do business in those states as a foreign corporation, and by reason thereof had incurred penalties under the laws of both states, that the company had wrongfully diverted income derived from the mortgaged property, that it had failed to make proper and necessary betterments to the plant, and to maintain it in a proper state of efficiency, that it had incurred a large floating debt and was insolvent, and, finally, that the company had failed to pay taxes on the mortgaged property due the states of Washington and Idaho, and setting out the amounts thereof. Then followed a prayer for a writ of subpoena directed to each of the defendants, that an accounting be had, that the lien of Guaranty Bank & Trust Company be ascertained and fixed by decree, that the lien of Portland Trust Company of Oregon, a new defendant brought in by the amendment, also be ascertained and fixed, that receivers be appointed to preserve and operate the property under the direction of this court, and for all general relief.

Thus, for the first time, notwithstanding the recital in the order made by Judge Rudkin to which I have adverted, the proceeding in this court became an original one, seeking to invoke the jurisdiction of this court as the court of principal decree for the foreclosure of the mortgage upon the property described therein, every particle of which was, and always had been, in the states of Washington and Idaho. That the recitation in the original order made by Judge Rudkin to the effect that the bill first filed in this court was in the nature of an original bill was inadvertently made is amply demonstrated by the memorandum filed by him on January 27, 1922, in ruling upon the complainant's motion to further amend its bill of complaint. In that memorandum he said:

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